Economic policy

Economic policy is the branch of politics that studies the effects of the intervention of public authorities and private entities on the economy, elaborating a series of specific operations in order to achieve a set of predetermined micro and macroeconomic objectives. Its main objective is to increase the overall level of welfare in a society*. In order to achieve this, it is necessary to deal with problematic situations in all sectors of the economy, but especially in the monetary, fiscal, commercial and industrial sectors.

The choices are made by a policy maker, which can be any public entity that has the power to implement economic policy interventions: the state, the government, the central bank, local societies, or international organizations (such as the International Monetary Fund or the United Nations). In economic terms, we define a *society as all the socio-economic subjects that participate in economic exchange in a country: Families, businesses, the state itself).

It is not to be confused with political economy: Political economy is a social science based on the analysis of the economic behavior of individual economic agents and their reactions to the variation of some variables considered fundamental, such as income, prices, taxation, interest tax, etc.. It is the study of the economy as it really is.

Economic policy, on the other hand, is the economic science that studies the normative aspects of public and private interventions in order to understand what should be done and how things should be. It uses the mathematical tools of political economy to achieve its goals. There are two types of interventions that can be implemented over time:

  • Short term: this type of action is aimed at stabilizing problematic situations, such as unemployment or high inflation rate.
  • Long period: this type of actions aimed at increasing economic development and concern measures of capital redistribution between public and private, or of income redistribution policies improvement.

And several assets to carry out economic policy:

  • Fiscal policy: which studies the possibilities of an economic intervention through the lever of public expenditure and the tax levy;
  • Monetary policy: which on the other hand studies the efficiency of the economic intervention through monetary leverage, money supply, liquidity and credit in the economic sector, the level of prices. The measures that can be applied to achieve the aforementioned objectives can be either direct or indirect, where the former (direct measures) imply an imposition of a certain behavior on a defined category of operators, and the latter (indirect measures) imply an influence on certain variables (prices, income, taxes) in order to induce the operators to behave in a certain way.
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